Qantas: A Synopsis
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Qantas: A Synopsis
AFTER the termination of an $8 billion merger proposal with British Airways last month, speculation has resurfaced that Qantas has turned its attention to Asia and is looking into a tie-up with Asia's biggest budget airline, Malaysian-based AirAsia, or Malaysia Airlines.
Speculation emerged last month in Malaysia that Qantas and AirAsia were in preliminary talks about a merger deal, but they were quickly hosed down by both companies.
Yesterday, Qantas again denied the talks, saying it wasn't in merger talks with anyone at present.
But with consolidation going on globally, driven more by the need to boost profits than being the biggest carrier, it is only a matter of time before Qantas's new boss, Alan Joyce, puts his stamp on the company and does a deal.
Qantas is an end-of-the-line carrier that operates in an uneven regulatory, competitive and financial playing field.
To try to protect its bottom line, it has been reducing capacity on international routes to keep a lid on its costs.
But this is a risky strategy and the price it will pay is a permanent loss of high-value traffic to competitors, many of whom are increasing inbound capacity into Australia over the next few months. Even more alarmingly, some have long-term agendas in this region.
The upshot is that industry consolidation is the most logical longer-term fix to this fundamental issue for Qantas.
The natural place for consolidation is Asia, particularly Malaysia, which is emerging as an airline hub, particularly since the Government's recent decision to open up inter-capital city routes.
For this reason, doing a deal with AirAsia can't be ruled out.
It is a publicly listed company with a market cap of about $US603 million ($852 million) and its colourful chief executive, Tony Fernandes, who launched the airline just two months after the attacks of September 11, 20001, when few wanted to fly, was recently forced to cancel a plan to privatise the airline after failing to get finance. Since then, the share price has continued to fall, making a tie-up a cheap option for Qantas.
AirAsia would certainly increase Qantas's footprint in Asia, but it would be a clear admission that its own Jetstar Asia strategy had failed.
The Qantas board obviously has a lot of faith in the budget airline model given its decision to appoint Joyce, the former head of Jetstar, as the new head of Qantas during the toughest industry conditions since 2001.
In such tough times, airlines with the lowest cost base are the ones most likely to survive. His international airline experience was also another big factor in the appointment.
But doing a deal with AirAsia has its pitfalls, not least of which is: which airline would dominate in the merger?
Qantas is a powerful brand but it would be short-sighted to do a deal with a budget airline when it could do a more strategically complimentary deal with Malaysian Airlines.
Qantas held unsuccessful exploratory talks with Malaysia last year and it is understood that the Malaysians have since indicated they are still willing totalk.
The reality is the market is waiting to see Joyce put his stamp on Qantas -- before somebody else does. If Joyce is smart, he will talk to Graeme Samuel, chairman of competition regulator the ACCC, to sound out his attitude to an Air New Zealand/Qantas tie-up, which would offer numerous synergies.
The two airlines tried to do a deal a few years ago, but abandoned talks in late 2004 when the competition regulators on both sides of the Tasman knocked it back.
In changed conditions, with new governments, their views might well be different.
But putting aside the highfalutin ambitions of global expansion and any speculation on what might happen to Qantas if the OneWorld alliance falls apart, Joyce really needs to get the airline's house in order domestically.
He needs to re-engineer the airline's domestic service process, address customer satisfaction and improve conditions with the unions.
Whatever surveys the company brings up, mounting anecdotal evidence shows that Qantas has lost the mindshare of customers. The perception is Qantas doesn't care about safety, customer service or its employees.
If he really wants to win some market share back from Virgin Blue, he needs to look at more than just price.
Too many flight cancellations with little warning, flights running late, flight attendants with low morale, sour faces at check-in desks and poor IT systems have left a bad taste in many people's mouths about Qantas.
It is no surprise then that Qantas has been having a tough time holding on to market share as customers switch to Virgin Blue. In a bid to win back customers, as well as a reflection of continued weak demand, Qantas abolished the domestic fuel levy.
All of these tough conditions have prompted analysts to revisit their numbers.
Earlier this week, Citi analysts estimated net profit would fall from $970 million last financial year to $348 million.
The International Air Transport Association estimates that world airlines will lose a collective $5.2 billion this year.
Nevertheless, it is still operating in a duopoly with Virgin Blue domestically and for that reason Qantas will stay profitable in 2009.
This is in sharp contrast to some of its Asian brethren, some of which are expected to make a loss.
In the past year, Qantas's share price has more than halved to $2.55, and pressure is expected to continue as global economies fall into a recession, leaving airlines exposed to dwindling demand, falling prices and tough debt markets.
Running an airline is never easy, but Joyce has taken the helm at one of the tougher periods in recent history.
If he plays his cards right and starts to improve customer service, staff morale and management's relationship with the unions, he will set the airline up for better times ahead. That will mean less bad press, less safety issues, and less flight delays.
Speculation emerged last month in Malaysia that Qantas and AirAsia were in preliminary talks about a merger deal, but they were quickly hosed down by both companies.
Yesterday, Qantas again denied the talks, saying it wasn't in merger talks with anyone at present.
But with consolidation going on globally, driven more by the need to boost profits than being the biggest carrier, it is only a matter of time before Qantas's new boss, Alan Joyce, puts his stamp on the company and does a deal.
Qantas is an end-of-the-line carrier that operates in an uneven regulatory, competitive and financial playing field.
To try to protect its bottom line, it has been reducing capacity on international routes to keep a lid on its costs.
But this is a risky strategy and the price it will pay is a permanent loss of high-value traffic to competitors, many of whom are increasing inbound capacity into Australia over the next few months. Even more alarmingly, some have long-term agendas in this region.
The upshot is that industry consolidation is the most logical longer-term fix to this fundamental issue for Qantas.
The natural place for consolidation is Asia, particularly Malaysia, which is emerging as an airline hub, particularly since the Government's recent decision to open up inter-capital city routes.
For this reason, doing a deal with AirAsia can't be ruled out.
It is a publicly listed company with a market cap of about $US603 million ($852 million) and its colourful chief executive, Tony Fernandes, who launched the airline just two months after the attacks of September 11, 20001, when few wanted to fly, was recently forced to cancel a plan to privatise the airline after failing to get finance. Since then, the share price has continued to fall, making a tie-up a cheap option for Qantas.
AirAsia would certainly increase Qantas's footprint in Asia, but it would be a clear admission that its own Jetstar Asia strategy had failed.
The Qantas board obviously has a lot of faith in the budget airline model given its decision to appoint Joyce, the former head of Jetstar, as the new head of Qantas during the toughest industry conditions since 2001.
In such tough times, airlines with the lowest cost base are the ones most likely to survive. His international airline experience was also another big factor in the appointment.
But doing a deal with AirAsia has its pitfalls, not least of which is: which airline would dominate in the merger?
Qantas is a powerful brand but it would be short-sighted to do a deal with a budget airline when it could do a more strategically complimentary deal with Malaysian Airlines.
Qantas held unsuccessful exploratory talks with Malaysia last year and it is understood that the Malaysians have since indicated they are still willing totalk.
The reality is the market is waiting to see Joyce put his stamp on Qantas -- before somebody else does. If Joyce is smart, he will talk to Graeme Samuel, chairman of competition regulator the ACCC, to sound out his attitude to an Air New Zealand/Qantas tie-up, which would offer numerous synergies.
The two airlines tried to do a deal a few years ago, but abandoned talks in late 2004 when the competition regulators on both sides of the Tasman knocked it back.
In changed conditions, with new governments, their views might well be different.
But putting aside the highfalutin ambitions of global expansion and any speculation on what might happen to Qantas if the OneWorld alliance falls apart, Joyce really needs to get the airline's house in order domestically.
He needs to re-engineer the airline's domestic service process, address customer satisfaction and improve conditions with the unions.
Whatever surveys the company brings up, mounting anecdotal evidence shows that Qantas has lost the mindshare of customers. The perception is Qantas doesn't care about safety, customer service or its employees.
If he really wants to win some market share back from Virgin Blue, he needs to look at more than just price.
Too many flight cancellations with little warning, flights running late, flight attendants with low morale, sour faces at check-in desks and poor IT systems have left a bad taste in many people's mouths about Qantas.
It is no surprise then that Qantas has been having a tough time holding on to market share as customers switch to Virgin Blue. In a bid to win back customers, as well as a reflection of continued weak demand, Qantas abolished the domestic fuel levy.
All of these tough conditions have prompted analysts to revisit their numbers.
Earlier this week, Citi analysts estimated net profit would fall from $970 million last financial year to $348 million.
The International Air Transport Association estimates that world airlines will lose a collective $5.2 billion this year.
Nevertheless, it is still operating in a duopoly with Virgin Blue domestically and for that reason Qantas will stay profitable in 2009.
This is in sharp contrast to some of its Asian brethren, some of which are expected to make a loss.
In the past year, Qantas's share price has more than halved to $2.55, and pressure is expected to continue as global economies fall into a recession, leaving airlines exposed to dwindling demand, falling prices and tough debt markets.
Running an airline is never easy, but Joyce has taken the helm at one of the tougher periods in recent history.
If he plays his cards right and starts to improve customer service, staff morale and management's relationship with the unions, he will set the airline up for better times ahead. That will mean less bad press, less safety issues, and less flight delays.
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Noddy and Big Ears Really Big Job
Looks like Joyce and Clifford have got their work cut out for them.
Unfortunately Clifford is a union basher which in turn means an employee basher.From here it looks like more of the same.
Unfortunately Clifford is a union basher which in turn means an employee basher.From here it looks like more of the same.
I know I'm not the sharpest tool in the shed but I have not read anywhere a detailed account of why consolidation especially with Malaysian is logical!
This article states;
A bit subjective don't you think?
Can the author please expand on that? I would of thought to increase yield to relatively reduce fixed costs!
Again why?
I'm still yet to see definitive reasoning. All the commentary seems to reflect QF statements.
This article states;
Qantas is an end-of-the-line carrier that operates in an uneven regulatory, competitive and financial playing field.
To try to protect its bottom line, it has been reducing capacity on international routes to keep a lid on its costs.
The upshot is that industry consolidation is the most logical longer-term fix to this fundamental issue for Qantas.
I'm still yet to see definitive reasoning. All the commentary seems to reflect QF statements.
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Utmost respect for Adele Ferguson at The Australian who wrote the Rat's Synopsis on Qantas - Asia the perfect fit for Qantas and for her statement that 'Joyce has taken the helm at one of the tougher periods in recent history (and) if he plays his cards right and starts to improve customer service, staff morale and management's relationship with the unions, he will set the airline up for better times ahead'
But how the hell will geting into bed with either MAS or AirAsia help fix:
Worse than going to bed on your own I reckon.
However, if as Adele states, 'Joyce is smart, (and) talks to Graeme Samuel, chairman of competition regulator the ACCC, to sound out his attitude to an Air New Zealand/Qantas tie-up,... which would offer numerous synergies for Joyce to put his stamp on Qantas -- before somebody else does',
Her speculation on what might happen to Qantas if the OneWorld Alliance falls apart may not be all bad, in that the Roo could then be free to flirt with Sky and Star.
Never did go much for English roses.
But how the hell will geting into bed with either MAS or AirAsia help fix:
Qantas' dwindling demand, falling prices and tough debt markets.
However, if as Adele states, 'Joyce is smart, (and) talks to Graeme Samuel, chairman of competition regulator the ACCC, to sound out his attitude to an Air New Zealand/Qantas tie-up,... which would offer numerous synergies for Joyce to put his stamp on Qantas -- before somebody else does',
Her speculation on what might happen to Qantas if the OneWorld Alliance falls apart may not be all bad, in that the Roo could then be free to flirt with Sky and Star.
Never did go much for English roses.
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Why don't Clifford and Joyce try doing what Dixon never did..just run the damned airline. It's what you're being paid to do boys!
Forget about the deals, yes I know they enrich you management types, but they can come unstuck big time, remember APA, freight cartels etc. How many millions of dollars were lost by Qantas management decisions over the last few years? Not to mention the laws that were broken (but i will anyway)...I'm still waiting for ASIC and the ACCC to grow a set and investigate properly some of the 'deals' that came unstuck.
What was the figure? 80 million dollars in fines for price fixing, yet not one Qantas manager in Australia has faced a court.
Forget about the deals, yes I know they enrich you management types, but they can come unstuck big time, remember APA, freight cartels etc. How many millions of dollars were lost by Qantas management decisions over the last few years? Not to mention the laws that were broken (but i will anyway)...I'm still waiting for ASIC and the ACCC to grow a set and investigate properly some of the 'deals' that came unstuck.
What was the figure? 80 million dollars in fines for price fixing, yet not one Qantas manager in Australia has faced a court.
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There are only two airlines that Qantas will end up in a merger/buyout with, the rest are just smoke screens trying to stave off the inevitable...
Emirates or Singapore, end of story!
Emirates or Singapore, end of story!
Reeltime, isn't that why there is an EGM running Qantas Airlines? The whole idea, as I understand it, is that the Qantas Group is made up of a number of businesses with the CEO holding all those together, with separate EGMs for each part of it. Sure, the investments have been disproportionate to other businesses, but I think it is up to Borghetti and his management team to really run the airline. Joyce needs to have the freedom to pursue the strategic agenda for the health of the Group, including possible tie ups with other carriers.
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Who did these reporters talk to?
It seems to me that Adele Ferguson in The Australian and Ben Sandilands at Plane Talking got the same leak but came at it from different directions.
Qantas and the Malaysian equation - Plane Talking
What are the chances this is how Qantas gets out of deals gone bad in Singapore and Hanoi. Maybe its sending a signal to Singapore Airlines that if it calls off Tiger it will fold the Singapore based Jetstar.
Qantas and the Malaysian equation - Plane Talking
What are the chances this is how Qantas gets out of deals gone bad in Singapore and Hanoi. Maybe its sending a signal to Singapore Airlines that if it calls off Tiger it will fold the Singapore based Jetstar.
(Sigh) Reeltime has it right, just run the damned airline.
Malaysia is a corrupt business environment, they will skin Qantas alive if they merged it with Malaysian.
Singapore is a one party dictatorship. They will also skin Qantas alive.
In fact, just about any first rate airline in the world has better strategic decision making skills than Qantas.
The only thing Qantas has to bargain with is its stranglehold on the Australian market, so nothing good is going to come out of it for the General public unless that stranglehold is removed - which vitiates the reason for a merger in the first place.
Malaysia is a corrupt business environment, they will skin Qantas alive if they merged it with Malaysian.
Singapore is a one party dictatorship. They will also skin Qantas alive.
In fact, just about any first rate airline in the world has better strategic decision making skills than Qantas.
The only thing Qantas has to bargain with is its stranglehold on the Australian market, so nothing good is going to come out of it for the General public unless that stranglehold is removed - which vitiates the reason for a merger in the first place.
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Jetstar of course!
Australian aviation has been heading downmarket ever since Ansett collapsed & seems to be determined to keep going in that direction. That will change eventually - most things go full circle eventually - but, once again, don't hold your breath!
Australian aviation has been heading downmarket ever since Ansett collapsed & seems to be determined to keep going in that direction. That will change eventually - most things go full circle eventually - but, once again, don't hold your breath!
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ebt....
Reeltime is right and that is the CEO and the rest of the board should concentrate on running the airline not working out who they want to get into bed with....
Darth admitted that he dropped the ball during the takeover bid.Was he chastised for that......no way,in fact his bonuses kept going up....as usual.
The only reason QF would benefit from a merger would be if they did so with an airline that had a route structure that complimented QF's...ie flights within Europe or the America's.
Reeltime is right and that is the CEO and the rest of the board should concentrate on running the airline not working out who they want to get into bed with....
Darth admitted that he dropped the ball during the takeover bid.Was he chastised for that......no way,in fact his bonuses kept going up....as usual.
The only reason QF would benefit from a merger would be if they did so with an airline that had a route structure that complimented QF's...ie flights within Europe or the America's.
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Merger with an Asian carrier?
Be careful what you wish for.
Jetstars use of Thai cabin crew for flights out of PER at a fraction of the wage cost of the Aussie crews is just the start.
Pax them in, pax them out. Clever way to get round immigration laws?
Be careful what you wish for.
Jetstars use of Thai cabin crew for flights out of PER at a fraction of the wage cost of the Aussie crews is just the start.
Pax them in, pax them out. Clever way to get round immigration laws?
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Ahh Waren globalisation is the convenient tag used to outsource labour. The result a lower cost base whilst enjoying the convenience of Australia. The end result is another wedge to drive into existing labour...Quite pitiful really but it does deliver huge wealth transfers to managers who jazz it up as efficiency..
Want to know why Dixon/Joyce/Clifford don't run an airline and search for "deals" Read Micael Pascoe's take on it from the SMH..Along with Alan Kohler and occassionally Terry McCrann were the standout lone media voices against APA..
Micael Pascoe SMH 9 December 2008
"Most people think they are better-than-average drivers, which, by definition, most people can't be. Call it a mass delusion.
Takeovers and mergers are generally like that too - a source of delusion for the key players.
Various studies over the years have found most big corporate takeovers/mergers are failures as far as the acquiring shareholders are concerned - but that doesn't stop the moving and shaking boards, CEOs and fee-hungry advisers all proclaiming that their takeover is different.
But there is one player who never loses in a big takeover - the CEO of the taker or takee. The quickest and easiest way to receive a multimillion payout (without the slight opprobrium of being sacked for incompetence) is to be taken over. Next best is to do the takeover, which enables the CEO's remuneration consultant to argue for a pay rise on the basis of greater responsibility.
Then there are the great urgers of modern capitalism, the investment bankers and advisors whose very existence is fed by doing the deal, not the long-term outcome. Corporate Australia is littered with the skeletons of takeover mistakes that nonetheless made an army of urgers rich.
And therein lies one of the under-examined aspects of M&A mania - the moral hazard whereby key players in the process make vast profits even if shareholders lose.
There are occasional exceptions - Vince Gauci's brave and wise fight against Xstrata's bargain basement takeover of MIM - but most CEOs happily stay in step with their boards, take the money and move on to the next game. Some seem serially successful at being corporate prey.
And it's not as if the CEO class is unaware of the dangers of moral hazard. For example, in the middle of the rescue of AMP, the then CEO, Andrew Mohl, stuck out his hand for a few million more as compensation for the fact that AMP would be smaller and, therefore, his pay packet less huge. Well, you wouldn't want him to be tempted to not sell assets that needed to be sold.
The urgers are another problem again. CEOs and chairman are constantly duchessed and propositioned by very personable investment bankers who profess to want nothing more than to find ways to add shareholder value. Or something like that.
And CEOs and chairmen are forever on the lookout for some bright "company making'' deal i.e. they are willing buyers of the urgers' wares. Never mind that the urgers only real concern is to keep the fee flood flowing.
Which brings us to the brouhaha de jour, the bemusing Qantas-BA merger talks. There's been plenty written about this dubious proposal, so much that there was little surprise in seeing Alan Joyce backpedalling yesterday.
But there's been little more than a passing wry observation about the role of the fee suckers, UBS and Macquarie. Yes, it is bemusing that Macquarie has gone so quickly from being Allco's Qantas raiding partner last year to sleeping inside the tent as Qantas' adviser on the BA deal, while UBS has switched from the Qantas camp to the BA side at the same time.
It's a lot more than bemusing though - it's outrageous. It raises doubts about the competency of the Qantas board and management that they would wear such nonsense - unless, of course, that the Qantas hierarchy is so culturally attuned to the merger that they would sleep with anyone to achieve it.
Let's pause to remember that one of the early signs that Macquarie's love of money wasn't quite healthy was the way it jumped camps from being Email's trusted advisor to advising Email's hostile raiders in 2000 - and doing it with a no-holds-barred vengeance at that, complete with serving dawn writs at Email directors' homes.
There was a time when it was thought a gentleman didn't do that sort of thing, that the long-term relationship and honour mattered more than the quick killing.
Now nothing can be taken for granted, including the moral hazard of urgers and CEOs being fabulously rewarded when shareholders are not. Maybe that's what they mean by "win-win''
Want to know why Dixon/Joyce/Clifford don't run an airline and search for "deals" Read Micael Pascoe's take on it from the SMH..Along with Alan Kohler and occassionally Terry McCrann were the standout lone media voices against APA..
Micael Pascoe SMH 9 December 2008
"Most people think they are better-than-average drivers, which, by definition, most people can't be. Call it a mass delusion.
Takeovers and mergers are generally like that too - a source of delusion for the key players.
Various studies over the years have found most big corporate takeovers/mergers are failures as far as the acquiring shareholders are concerned - but that doesn't stop the moving and shaking boards, CEOs and fee-hungry advisers all proclaiming that their takeover is different.
But there is one player who never loses in a big takeover - the CEO of the taker or takee. The quickest and easiest way to receive a multimillion payout (without the slight opprobrium of being sacked for incompetence) is to be taken over. Next best is to do the takeover, which enables the CEO's remuneration consultant to argue for a pay rise on the basis of greater responsibility.
Then there are the great urgers of modern capitalism, the investment bankers and advisors whose very existence is fed by doing the deal, not the long-term outcome. Corporate Australia is littered with the skeletons of takeover mistakes that nonetheless made an army of urgers rich.
And therein lies one of the under-examined aspects of M&A mania - the moral hazard whereby key players in the process make vast profits even if shareholders lose.
There are occasional exceptions - Vince Gauci's brave and wise fight against Xstrata's bargain basement takeover of MIM - but most CEOs happily stay in step with their boards, take the money and move on to the next game. Some seem serially successful at being corporate prey.
And it's not as if the CEO class is unaware of the dangers of moral hazard. For example, in the middle of the rescue of AMP, the then CEO, Andrew Mohl, stuck out his hand for a few million more as compensation for the fact that AMP would be smaller and, therefore, his pay packet less huge. Well, you wouldn't want him to be tempted to not sell assets that needed to be sold.
The urgers are another problem again. CEOs and chairman are constantly duchessed and propositioned by very personable investment bankers who profess to want nothing more than to find ways to add shareholder value. Or something like that.
And CEOs and chairmen are forever on the lookout for some bright "company making'' deal i.e. they are willing buyers of the urgers' wares. Never mind that the urgers only real concern is to keep the fee flood flowing.
Which brings us to the brouhaha de jour, the bemusing Qantas-BA merger talks. There's been plenty written about this dubious proposal, so much that there was little surprise in seeing Alan Joyce backpedalling yesterday.
But there's been little more than a passing wry observation about the role of the fee suckers, UBS and Macquarie. Yes, it is bemusing that Macquarie has gone so quickly from being Allco's Qantas raiding partner last year to sleeping inside the tent as Qantas' adviser on the BA deal, while UBS has switched from the Qantas camp to the BA side at the same time.
It's a lot more than bemusing though - it's outrageous. It raises doubts about the competency of the Qantas board and management that they would wear such nonsense - unless, of course, that the Qantas hierarchy is so culturally attuned to the merger that they would sleep with anyone to achieve it.
Let's pause to remember that one of the early signs that Macquarie's love of money wasn't quite healthy was the way it jumped camps from being Email's trusted advisor to advising Email's hostile raiders in 2000 - and doing it with a no-holds-barred vengeance at that, complete with serving dawn writs at Email directors' homes.
There was a time when it was thought a gentleman didn't do that sort of thing, that the long-term relationship and honour mattered more than the quick killing.
Now nothing can be taken for granted, including the moral hazard of urgers and CEOs being fabulously rewarded when shareholders are not. Maybe that's what they mean by "win-win''